2025 (8) TMI 1427 - AT - Income Tax

Legal challenge to validity of intimation under s.143(1)(a) can be raised first before appellate authority; matter remanded to CIT(A)

Nirmala Nawal Phatarphekar Versus ITO Circle 19 (1) Piramal Chambers, Mumbai

Nirmala Nawal Phatarphekar Versus ITO Circle 19 (1) Piramal Chambers, Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether denial of claim for carry forward of long-term capital loss by processing the return under section 143(1)(a) constitutes a permissible adjustment under that provision, in particular without issuance of an intimation/show-cause in terms of the first proviso to section 143(1)(a). 2. Whether a legal ground challenging the validity of an intimation issued under section 143(1) (i.e., that such intimation is void for contravening the proviso) can be raised for the first time before the Tribunal though not raised before the first appellate authority. 3. Whether, given absence of relevant documentary material on the Tribunal file, the matter requires restoration/remand to the first appellate authority for examination of factual records (including whether the statutory intimation was in fact communicated and whether the loss pertains to the current year and is eligible for carry forward). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of denial of carry forward of long-term capital loss under section 143(1)(a) Legal framework: Section 143(1)(a) prescribes limited adjustments while processing a return, listing specific categories (arithmetical errors, apparent incorrect claims from return information, certain disallowances of loss/deductions, additions from specified information). The first proviso to section 143(1)(a) mandates that no such adjustment shall be made unless an intimation of the adjustment is given to the assessee in writing or electronically; the second proviso requires consideration of the assessee's response before making adjustments. Precedent treatment: A coordinate Tribunal bench has held that where the processing centre, while acting under section 143(1)(a), denied carry forward of long-term capital loss without issuing the mandated intimation or show-cause, that action was perfunctory, lacked jurisdiction and violated principles of natural justice. The Supreme Court has been held to permit the Tribunal to consider pure questions of law arising in assessment proceedings even if raised first time before it. Interpretation and reasoning: The Tribunal analyzed the statutory text and concluded that denial of entitlement to carry forward a long-term capital loss is not a mere arithmetical or manifest error apparent from the return but affects substantive determination of loss carry-forward rights. Therefore, making such an adjustment in the processing stage without issuing the intimation required by the first proviso and without affording the assessee opportunity to respond would be beyond the permissible scope and in violation of the proviso and the second proviso. The Tribunal observed the intimation record showed the loss claimed on the schedule but that the processing centre had not determined the carry forward in the intimation, and no separate show-cause/intimation had been communicated to the assessee prior to making the adjustment. Ratio vs. Obiter: Ratio - An adjustment in processing that effectively disallows carry forward of long-term capital loss cannot be made without compliance with the first and second provisos to section 143(1)(a); failure to issue the required intimation / consider the assessee's response makes such adjustment impermissible and vitiates the intimation. Obiter - Reference to a particular coordinate bench decision as analogous is persuasive but not essential to the statutory interpretation. Conclusion: The Tribunal held that denial of carry forward of long-term capital loss by the processing centre without complying with the intimation proviso is beyond the scope of permitted adjustments under section 143(1)(a) and amounts to a legal infirmity that warrants reconsideration. Issue 2 - Permissibility of raising the legal challenge to the intimation for the first time before the Tribunal Legal framework: The Tribunal's powers under the statute permit it to decide questions of law arising out of assessment proceedings, and established jurisprudence allows raising pure questions of law for the first time before the Tribunal where relevant facts are on record and no fresh factual enquiry is required. Precedent treatment: The Tribunal relied upon higher-court authority recognizing that the Tribunal should not be prevented from considering legal questions arising in assessment proceedings even if not raised earlier, provided the question is purely legal and the relevant facts are available on record. Interpretation and reasoning: The Tribunal examined whether the ground challenging validity of the intimation was a pure legal question (i.e., whether adjustments under section 143(1)(a) were permissible without the mandated intimation). It concluded that this was a legal issue not requiring factual investigation and therefore could be entertained for the first time before the Tribunal. The Tribunal rejected the revenue's objection that the issue was not raised earlier and therefore should be disallowed. Ratio vs. Obiter: Ratio - A pure legal challenge to the validity of an intimation under section 143(1)(a), which does not necessitate fresh factual enquiry, may be raised for the first time before the Tribunal. Obiter - Observations on discretionary considerations where factual disputes exist. Conclusion: The Tribunal accepted the legal ground raised for the first time and proceeded to examine the validity of the processing adjustment under section 143(1)(a). Issue 3 - Need for remand where factual records and documentary proof are absent from Tribunal file Legal framework: Where statutory compliance (e.g., issuance of intimation) is disputed and the assessment record/documents are necessary to determine whether the intimation was communicated or whether the loss legitimately pertains to the year claimed, the appropriate course may be to remit the matter to the lower authority for verification and fresh decision in accordance with law. Precedent treatment: The Tribunal noted coordinate authority had directed remand where the processing centre disallowed carry forward without complying with the intimation provision and directed reassessment of entitlement after compliance with statutory requirements. Interpretation and reasoning: The Tribunal found that although the prima facie legal infirmity of the intimation was established, the departmental record on whether the intimation was in fact communicated and whether the claimed long-term capital loss related to the current year (and was supported by documentary proof) was not before the Tribunal. In absence of the ITR and supporting documents on the Tribunal record and since the revenue did not have an opportunity to rebut the new legal plea at the appellate level, the Tribunal considered it necessary to remit the matter to the first appellate authority for fact-finding and fresh adjudication consistent with the legal conclusions and directions given. Ratio vs. Obiter: Ratio - Where legal invalidity of a processing adjustment is asserted but the factual record necessary to determine compliance with statutory intimation requirements and eligibility for carry forward is absent, the proper course is remand to the first appellate authority to examine the assessment record, verify whether the intimation was issued and to decide entitlement on facts. Obiter - Guidance on awarding benefit where record conclusively shows no intimation was issued. Conclusion: The Tribunal restored the matter to the first appellate authority with directions to examine the assessment file, determine whether the first proviso to section 143(1)(a) was complied with (i.e., whether intimation/show-cause was communicated and the assessee's response considered), and thereafter decide the carry-forward claim on merits and in conformity with the Tribunal's interpretation and the coordinate bench guidance. The appeal was allowed for statistical purposes and the remand directed accordingly.